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Steve Bee on pensions

If it’s not one thing with pensions these days, it’s another. Quite apart from all the changes coming in following the publication of last year’s Finance and Pension Acts, we have also got the knock-on effects of age discrimination legislation to contend with.

New anti-ageist regulations following on from the European directive will be coming into force shortly after A-Day on October 1, 2006. Basically, after that date, we will not be able to pick on people because they are old any more. We will still be able to pick on people for other reasons but not because of their age.

As far as pension schemes are concerned, though, ageism is what they are all about really. I mean, they are ageist. That is the point of them, isn’t it?

Anyway, notwithstanding that little fact, it looks like these new regulations will have a big effect on our pension environment and, particularly, what employers will and will not be able to do after October 2006. You will not be surprised to know, though, that the regulations will not be published until later this year so we do not know all the details yet but I guess it is another thing that employers will have to take into account when they are putting all the other pension stuff in place.

The European framework directive for equal treatment in employment and education is the piece of legislation we have got to work into our statute books and the bad news is there is no exemption made for pensions. It is likely that the way pension schemes operate will need to be looked at carefully to make sure that discrimination on grounds of age is not likely to happen. This could call into question all sorts of commonplace practices such as employers giving age-related contributions and things like that. The directive does make some practical concessions for pension schemes in that it will allow them to have age limits for joining and becoming entitled to benefits and actuarial factors will still be allowed to be age-based, for instance.

Remember that, at the moment, you cannot get to retirement age and start drawing your pension and stay working for the same employer. Now, a lot of this has already been woven into the provisions of the 2004 Finance Act.

But recently, the Government got off the fence on one big issue and announced that it will be OK to set a “default” retirement age of 65 for all.

Effectively, it means that no one will be able to be forced to stop work before they are 65 (unless, of course, their employer can objectively justify a lower age but I will not go there at the moment). This is not really a pension issue. Even when the new default retirement age is in place, employees will still be able to say they are not going along with it and just carry on working. That, obviously, will become a pension issue in its own right and employers will need to decide what they are going to do as far as pension benefits go if people want to work on.

The new post-A-Day tax rules will mean that people will be able to take their retirement benefits and carry on working but the problem for employers will be to see how they can incorporate all the options that people might want in terms of flexibility without being ageist or sexist while they are going about it. It is a tricky one.

At this stage, it is not clear whether the Government’s decision to set a default retirement age of 65 will be allowed to stand. It is also unclear whether they will be able to keep insisting that people should buy an annuity with their pension savings once they reach the arbitrary age of 75. I still think it is all up for grabs and that we may be in for some major re-writing of our pension laws soon after October 2006 if these seemingly age-related impositions are not allowed to stand.

The requirement to annuitise by the age of 75 has become a bit clouded by the proposed changes that will come in on A-Day, particularly with the introduction of alternatively secured pensions, but I think things may look more clear-cut from an ageist standpoint.

It seems to me that any insistence that people are required to behave differently or have different options available to them due to their age is likely to fall foul of the new realities after October 2006. The outcome of all this could, of course, have a profound effect on the annuity markets we have today and that is yet another really big pension issue that may be waiting for us just around the corner.

Steve Bee is head of pension strategy at Scottish Life

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